Home loans still flowing despite shutdown

The budget crisis in Washington hasn’t made it impossible to get a mortgage, as many had feared.

The biggest concern was with Fannie Mae and Freddie Mac, the government-owned companies that own or back nearly 90% of all new mortgages.

Fannie and Freddie buy home loans from banks and mortgage companies that make them. Some loans they keep and others they package and resell to investors as bonds, guaranteed against default.

To qualify for purchase, loans must "conform" to Fannie and Freddie's rules, which is why most mortgages are called "conforming loans.

One of those rules requires lenders to verify a borrower's income with the Internal Revenue Service.

But the IRS isn't verifying incomes during the shutdown, which could have brought the entire mortgage lending process to a grinding halt.

Fortunately for us, Fannie and Freddie recently announced they were temporarily waiving that requirement.

"We're issuing this guidance to help ensure the continued smooth operation of the mortgage market during the temporary shutdown of the federal government," Dave Lowman, executive vice president of single-family business at Freddie Mac, said in a news release.

Whew.

Wells Fargo, the nation's largest mortgage lender, is already pushing applications through the system without confirming incomes through the IRS.

"For the most part, we really don't expect any disruption to the origination or closing of government or conventional loans," Tom Goyda, a spokesman for Wells Fargo, told us.

Indeed, Goyda said applications were still being processed and approved for FHA and VA loans – the two most popular types of government-guaranteed mortgages.

Once the shutdown is over, Goyda said Wells will go back and check the incomes of all borrowers with the IRS.

"Every borrower whose income is part of the calculation in the application does need to sign, date and have a fully executed form" to do that, Goyda said. "We'll go ahead and process those once the IRS is back up and running."